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HMRC internal manual

Corporate Finance Manual

HM Revenue & Customs
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Old rules: loan relationships: consortia and bad debts: group relief restriction

Restriction based on earlier bad debt relief

This guidance applies to periods of account beginning before 1 January 2005 

Where bad debt debits had already been given for any previous period that began on or after 1 October 2002 in respect of loans to a consortium company, FA96/SCH9/PARA5A(12) potentially restricted the amount of group relief that group members may claim in subsequent periods.

Para 5A called past bad debt debits the ‘cumulative net amount of relevant net debits for earlier group accounting periods’. Para 5A(13) explained how to calculate this amount. It was the

  • relevant net debits (the excess of bad debts over recoveries) for each group accounting period, less
  • reductions that were made to those debits for those periods under Para 5A(6).

That past bad debt relief then potentially reduced the amount of group relief that may be claimed in the next succeeding period.

How the restriction worked

The FA96/SCH9/PARA5(12) restriction could be reduced to a formula. In broad terms, group relief of a period was potentially restricted (but not below nil) by the amount of bad debt debits allowed in previous periods. However, the restriction was not applied to the whole group relief claim, only the ‘top slice’. That is, the amount (if any) by which the group relief claim exceeded the bad debt debits of the same period. This notional ‘slicing’ of the group relief claim was needed to maintain the statutory approach (which remains the case) that

  • bad debt relief is restricted in priority to group relief
  • group relief is only restricted as a last resort.


In Example 2 at CFM81390, MC Ltd wrote off £40,000 of a loan to a consortium company and made a claim to group relief from the consortium company of £16,000. The debit for bad debts was reduced to £24,000 by the group relief claimed of £16,000.

In the following year, there was a further bad debt debit of £20,000 and a group relief claim of £38,000.

Restrict bad debts by group relief

Para 5A(6) would have reduced the bad debt debit to nil as the group relief claim exceeded £20,000.

Restrict group relief by earlier bad debts

Para 5A(12) then would have reduced the group relief claim of £38,000. However, the restriction only applied to the top slice: - the excess of

group relief claim £38,000
new bad debt debits £20,000

Cumulative past bad debt debits were £24,000; so group relief would have been reduced by the maximum amount, £18,000. The group relief claim would then have been £38,000 - £18,000 = £20,000.

Cumulative bad debt debits to carry forward and use in restricting group relief under Para 5A(12) in subsequent accounting periods would have been £24,000 - £18,000 = £6,000.

Overall result

Para 5A(6) would have reduced bad debt debits from £20,000 to nil.

Para 5A(12) would have reduced group relief from £38,000 to £20,000.

Where there was more than one bad debt and/or group relief claimant, those reductions would have been apportioned between them.